June 17, 2006
A License to Print Money
A Washington Post article (here) discusses the $40 million in attorney's fees former Enron CEO Jeffrey Skilling has paid so far to his legal team from O'Melveny & Myers, and the fact that the firm is still owed quite a bit more from the long trial. As discussed in an earlier post (here), federal prosecutors froze approximately $60 million in Skilling's assets in 2004, and the issue of how much Skilling will be required to forfeit remains to be decided. Skilling paid the law firm $23 million, and an Enron insurance policy provided $17 million more for defense costs.
The legal fees run up by Skilling's defense team are certainly large, but do not appear to be completely out of line with other complex white collar crime prosecutions involving senior executives. Hollinger International recently paid its former CEO Lord Conrad Black $4.4 million for his attorney's fees through his indictment and agreed to foot 75% of his future bills as he fights RICO and securities fraud charges (see earlier post here). The case is not scheduled for trial until 2007, and will likely be nearly as long as the Enron case, so the attorney's fees for the many lawyers retained by Lord Black will be significant. Former Tyco CEO Dennis Kozlowski is seeking payment under a company insurance policy of over $17 million in attorney's fees from his first trial, which ended with a hung jury (see earlier post here). Richard Scrushy is reported to be seeking over $20 million in legal fees from HealthSouth, where he was CEO until being fired in 2003, under the company's indemnification policy after his acquittal on securities fraud charges in 2005.
As detailed in the Post article, a legal defense is not cheap because a cadre of lawyers and support staff often work many hours on the case, charging hourly rates from $200 up to $800 per hour, and the volume of documents requires a detailed review by outside experts. When I teach the White Collar Crime course, I point out to students that the defense of individuals and especially companies in criminal and securities fraud investigations and prosecutions is one of the few remaining areas of legal practice in which the lawyers have almost a blank check to work the case and bill their clients, all on an hourly basis. Don't forget that contingency fees are prohibited by the professional responsibility rules, so the lawyers have to work only for a negotiated fee unrelated to the outcome. The legal fees of corporations triggered by an internal investigation and payments for defense counsel for individual officers, directors, and employees, can total millions of dollars and stretch out over years.
There is a risk for lawyers in a case such as Skilling's if the client does not have unlimited resources, which very few do. O'Melveny & Myers probably does not have much chance to have its outstanding bills paid by Skilling because the $60 million frozen by the court may well go to pay for disgorgement in an SEC lawsuit or damages in a securities class action, assuming the prosecutors don't get an order forfeiting it or the judge requires a large restitution payment at sentencing. The old adage that lawyers should get their fees up-front because it's unlikely they can get more after a conviction is true even in white collar crime cases. That does not mean O'Melveny & Myers will be withdrawing, however, because at least the publicity value from representing Skilling means that his lead trial counsel, Daniel Petrocelli, is now viewed as one of the top-tier white collar crime lawyers even though this was his first criminal case. In white collar prosecutions, like all criminal cases, the client gets convicted and the lawyer goes to lunch, usually celebrated for his legal skill. (ph)
UPDATE: A Houston Chronicle story (here) discusses a hearing U.S. District Judge Sim Lake held on Friday, June 16, granting the defendants' motion to postpone sentencing for 45 days, setting a new sentencing date of October 23. Skilling's counsel, Daniel Petrocelli, flew to Houston for the brief (15-minute) hearing, although Judge Lake noted that the attorneys could have participated by conference call. At $800 per hour for Petrocelli, and with other O'Melveny & Myers attorneys present (no one travels alone in these cases), the billable hours probably resembled an electric meter in Houston on a summer day, spinning so fast you can't read the numbers. (ph)
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